WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

Social Security and Veterans' Affairs Legislation
Amendment (Budget and Other Measures) Bill 1997

Date
Introduced:3
December 1997

House:House of Representatives

Portfolio:Social Security

Commencement:Upon Royal Assent except:

Schedules 1& 2 which commence on 1 July
1998.

Schedule 3, which commences on 20 September
1998.

Schedule 4 which commences on 1 July 1998 with
the exception of items 3-11 which commence on 1 July 1998 but
immediately after the commencement of Part 1 of Schedule 4 to the
Social Security Legislation Amendment (Parenting and Other
Measures) Act 1997 and items 18-19 which commence immediately
after the commencement of the Social Security Legislation
Amendment (Youth Allowance) Act 1997.

Items 1-11 of Schedule 5 commence on 1 July
1999.

Items 44-47, 50, 140-143 and 146 of Schedule 6
commence immediately before the commencement of Schedule 20 to the
Social Security and Veterans' Affairs Legislation Amendment
(Family and Other Measures) Act 1997.

The Bill amends
the Social Security Act 1991 and the Veterans'
Entitlements Act 1986 so as to introduce a carer's payment for
carers of profoundly disabled children, relax the means test for
certain superannuation products and make other consequential or
technical amendments to these acts and a number of other acts.

The Social Security Portfolio consists of the
Department of Social Security (DSS), Centrelink (set up under the
Commonwealth Services Delivery Agency Act 1997) and the
Social Security Appeals Tribunal. The Social Security Act
1991 and the Housing Assistance Act 1996 are both
administered by the portfolio.

The recent establishment of the Commonwealth
Services Delivery Agency (the 'CSDA') is described in the 1996-97
Annual Report as causing 'undoubtedly the largest organisational
change it [DSS] has experienced since it began functioning in
1941.'(1) The CSDA was established by combining the delivery
elements of DSS and the Department of Employment, Education and
Training and Youth Affairs.

The Budget papers estimate that the DSS will
save $1.161m in running costs as a result of the 'review of
superannuation supplementation arrangements for employer
superannuation liability for the Public Sector Superannuation
Scheme and the Commonwealth Superannuation Scheme.'(2)

An additional $0.403m in running costs was
allocated in part to allow the DSS to 'contribute to the
implementation of changes to the child care programme in
1997-98.'

In October 1997, the third report of the
Australian Institute of Health & Welfare, Australia's
Welfare 1997 was published. The report created some
controversy by stating that Australia is spending more on welfare
services than ever before and that welfare spending by both
government and non-government organisations was around $8.9 billion
in 1995-96 (approximately $489 per person).(3) Work done by carers
at home (ie caring for disabled family members or friends) is not
included in this figure. Welfare services expenditure when
expressed as a percentage of GDP increased according to the
report:

Total welfare services expenditure as
a proportion of GDP increased from 1.3% in 1989-90 to 1.8% in
1992-93, after which it remained at that level for the next three
years.(4)

However, the increase in spending is
explainable, at least partly, in terms of Australia having an aging
population (ie more people on the age pension) and the fact that
unemployment levels are quite high. When unemployment is high, the
number of people on welfare tends to increase, not only in the
unemployment category but in the disability category and the
sole-parent's pension category.

The report also states that government spending
declined:

In 1995-96, total expenditure by all
levels of government in Australia for all purposes was $175 billion
(ABS 1997a), a decline from the previous year of 1.2%. ...In terms
of proportions, social security accounted for 24.4% of total
expenditure, followed by health (15.6%) and education (13.6%).
Welfare services accounted for 3.3% of total expenditure.(5)

The definition of welfare services expenditure
is the assistance delivered to clients, or groups of clients, with
special needs, such as the young, the old or people with a
disability.

The Organisation for Economic Co-operation and
Development (OECD) keeps statistics showing the international
comparisons of government expenditure on welfare services. The
accuracy of these figures depends very much on the definitions of
welfare services being consistent from country to country, the
population size of the country and the currency conversions.
Nevertheless, Australian government welfare services expenditure as
a proportion of GDP 'remained marginally above the OECD average
from 1987, when State and Territory government expenditures were
first included in the data, to 1989.' 'Sweden, Denmark, Norway and
Finland have the highest levels of per person government
expenditure on family and child welfare, and Sweden and Denmark
have the highest levels of government expenditure on welfare for
aged and disabled persons.(6)

The Child Disability Allowance (CDA) is paid to
the parents of children with disabilities. It is designed to assist
those parents with the extra costs (including the carer's loss of
income) that come with having a child which requires constant and
substantial daily care. CDA is payable where the child is under 16
(or a full-time student between 16 and 21) and has a diagnosed
physical, intellectual or psychiatric disability which calls for
substantially more care and attention on a daily basis than a child
of the same age who is not so afflicted.(7) CDA is not taxable and
is not subject to an income or assets test. CDA continues to be
paid for the child's temporary absences from home provided that
they are less than 42 days in a calendar year.

As at 30 June 1997, 106,784 children and
students qualified for CDA, representing a 6% increase over the
figures for 1995-96.(8) The increased figures are attributed to a
greater community awareness of the availability of CDA together
with broader targeting by DSS of the payment.(9)

One of the main features of the Bill is that it
will introduce a new carer's payment to people who are caring for
profoundly disabled children.

Schedule 1 will allow carers of
profoundly disabled children to receive a carer's payment. This is
the first time such carers will be eligible for this benefit and
therefore it is generally regarded as a positive step. The carer's
payment is subject to both an income test and an assets test.

The objective of the carer payment is to
'facilitate caring in the community and ensure that carers have
adequate levels of income and maximum opportunities to participate
in society.'(10) The Annual Report notes that 29,558 people
received the Carer Pension (now called the 'carer payment') in
1996-97 at a cost of $228 million. Women comprised 53% of the
recipients of carer pensions.(11)

The definition of a 'profoundly disabled child'
is contained in proposed subsection 18A and
includes children who have either a severe multiple disability or a
severe medical condition. The second portion of the definition
lists a number of conditions and the child must have three or more
of those conditions to satisfy the definition of a profoundly
disabled child. It would appear from the list of disabilities or
conditions in proposed subsection 18A (2)(c) that
many of those conditions on their own would ensure that the child
needed constant care. However, the test is that the child must have
three or more of the listed disabilities or conditions.

Proposed subsection 198(1)
defines the qualifications of a carer who will be eligible for the
carer payment. For example, the care must be provided in a private
residence that is the home of the child and is in Australia.

Proposed subsection 198D(1)
establishes the assets test for the carer's payment. The total
value of assets of the disabled child and the parents (if they are
resident in the same house) must be less than $406,000. As with
other social security benefits, the Bill prohibits the disposal of
assets for the purposes of obtaining a benefit (proposed
sections 198F(1), 198HA and 198JA).

The Bill proposes to exclude certain lump sums
('exempt lump sums') from the definition of 'ordinary income' for
the purposes of the Principal Act. One-off payments that are not
from remunerative work and fall under the definition of exempt lump
sums will be exempt under the income test. Proposed section
8(11)(d) will allow the Secretary to determine what
constitutes an exempt lump sum and the note indicates that things
like lottery wins and one-off gifts might be determined as exempt
lump sums. The Bill does not expressly provide that this
determination by the Secretary will be a disallowable
instrument.

Lump sums received that are not exempt will be
treated either as if they were received in equal weekly instalments
over a 12 month period or as if they are a financial asset and
therefore subject to the deeming rules.

Income streams are a 'regular series of
payments, made for life or for a fixed term, and purchased with a
capital sum or made directly from accumulated superannuation
contributions.'(12)

Schedule 3 will deal with
superannuation-type products and according to the Explanatory
Memorandum will give people on the age pension more flexibility in
their choice of superannuation-type product whilst cutting back on
the payments to independently wealthy pensioners.

The 1997/98 Budget Statement, Savings:
Choice and Incentive announced changes to the treatment of
retirement income stream products under the social security means
tests. The new rules, scheduled to apply from September 1998,(13)
will exempt certain products from the age pension assets test. The
aim of the Government's policies in this area, according to the
Annual Report, is to 'encourage private saving and to enhance
Australia's retirement income systems...through the introduction of
the deferred pension bonus plan and simplification of the means
test treatment of income streams'.(14)

Income streams that will be asset-tested are
those where the benefit is capital in nature. Proposed
subsection 9(1) gives an example of one that is capital in
nature being one where the income stream has a term over 5 years
but the life expectancy of the recipient is less than five
years.

Item 17 inserts
proposed subsection 9(1) which defines income
stream to include certain specified superannuation type products
but not available money, managed investments or the like.

Item 31 allows the Secretary to
determine written guidelines designating income streams for the
purposes of the Act. Such written determinations are disallowable
instruments and are therefore subject to Parliamentary control.

Item 35 inserts
proposed section 9A which defines an asset-test
exempt income stream. Unless otherwise determined by the Secretary,
a product meets the definition if essentially it either features a
steady drawdown over a long period with no access to capital or it
runs for over 15 years where the recipient's life expectancy is
greater than 15 years.(15) To be exempt from the asset test, the
income stream must, among other things, be payable at least
annually throughout the recipient's life and if the income stream
features a reversionary beneficiary (ie where the recipient dies
and the benefit reverts to another person such as a child or spouse
of the recipient) then that benefit must be either payable
throughout the beneficiary's life or (if they are a child) until
they reach the age of 16 years or, if between 16 and 25, finish
their full-time studies.

Schedule 3 Part 2 amends the
Veterans' Entitlements Act 1986 so as to achieve
consistency between that Act and the Principal Act in relation to
the treatment (ie means testing) of income streams.

A person cannot receive a Service Pension from
the Department of Veterans' Affairs and an Age Pension under the
Principal Act at the same time, regardless of age.(16)

As the title indicates, schedule 4 is intended
to apply to seasonal workers (for example tuna-fishermen, fruit
pickers and shearers) who earn high or relatively high incomes for
part of the year and are then 'out of work' for part of the year.
The provisions in the Bill will make it more difficult for such
workers to claim benefits, although there is still the safety net
if they satisfy the financial disadvantage test.

The Secretary will be able to determine what
constitutes seasonal work for the purposes of the Act. That written
determination will be a disallowable instrument and therefore
Parliament will retain control over the definition of seasonal
work.

There will be a preclusion period which will
prevent the worker from obtaining benefits straight away. The
preclusion period will depend upon the amount of seasonal work done
in the past 6 months, the income earned, and will be calculated
according to each seasonal worker's situation. The seasonal
worker's spouse or partner's situation will also be taken into
account if the seasonal worker is a member of a couple.

The safety net appears in each area of the Bill
that proposes a seasonal work preclusion period in applying for a
benefit. For example, in proposed subsection 19C(3)
b the test of 'severe financial hardship' for a person who
is a member of a couple is such that the definition is only
satisfied when the value of the couple's liquid assets is less than
twice the maximum fortnightly payment of the benefit applied
for.

Proposed section 408CH will
apply a seasonal work preclusion period to people applying for a
widow allowance if they have undertaken seasonal work in the six
months preceding the application.

Proposed section 500Z will
similarly apply a seasonal work preclusion period to applications
for parenting allowances. The Bill also limits other benefits by
applying the same seasonal work preclusion period to benefits such
as: newstart allowance; youth allowance; mature age allowance; and
partner allowance. In each case, the severe financial hardship test
operates as a safety net to ensure that people who are genuinely in
desperate financial straits still qualify for the particular
benefit applicable to them.

The financial hardship rules apply generally to
recipients of benefits where the benefit is not payable due to the
assets test and the disposal of assets test (ie where someone has
disposed of their assets for the purpose of qualifying for a
benefit) does not apply and the person claims financial hardship.
In those circumstances, the Secretary may satisfy themselves that
the person would suffer severe financial hardship if they were not
paid the particular benefit. 'Unrealisable assets' (where they
can't be sold or where it is unreasonable to expect that they be
sold) may be disregarded for the purposes of calculating whether
someone would suffer severe financial hardship. An example of an
'unrealisable asset' may be a family farm where the farmer has
lived on the property for 20 years or more and yet the property is
not capable of being subdivided and sold. In such circumstances, it
would be unreasonable to expect that farmer to sell the property in
order to secure an income in retirement. The Government established
a Special Rural Task Force in September 1996 to assess the impact
of the assets tests in the social security legislation to make sure
that farm families were not disadvantaged.(17) These proposed
amendments largely come from that inquiry.

Item 1 defines what is meant by
severe financial hardship for single people and for persons who are
members of a couple. For example, a single person will be deemed to
be in severe financial hardship if their liquid assets are less
than the fortnightly amount of the maximum rate of the payment or
allowance that would otherwise be payable to them.

The proposed amendments will allow the Secretary
to satisfy themselves that a person's severe financial hardship was
caused by either unavoidable or reasonable expenditure and thereby
give relief by approving payment of the benefit.

Schedules 6 and 7 make
consequential or technical amendments to the Principal Act and
various other pieces of legislation as a result of the introduction
of the CSDA and the change of name of family payment to family
allowance. Schedule 8 makes consequential
amendments to the Farm Household Support Act 1992
resulting from the change of name of the drought relief payment to
an exceptional circumstances relief payment or restart income
support.

Susan Downing
2 March 1998
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to
Senators and Members of the Australian Parliament. While great care
is taken to ensure that the paper is accurate and balanced, the
paper is written using information publicly available at the time
of production. The views expressed are those of the author and
should not be attributed to the Information and Research Services
(IRS). Advice on legislation or legal policy issues contained in
this paper is provided for use in parliamentary debate and for
related parliamentary purposes. This paper is not professional
legal opinion. Readers are reminded that the paper is not an
official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with
Senators and Members
and their staff but not with members of the public.

Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by Members
of the Australian Parliament in the course of their official
duties.